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MonJa’s Digital Banking and Lending Monthly Roundup – Why Subscribe?
Digital banking and lending are evolving rapidly. Recent fintech-banking partnerships and innovation in technology with the introduction of AI, ML and blockchain herald a new era in lending. Fintech’s are changing the competitive ecosystem, empowering lenders to process loans faster and smarter. In a world full of noise, understanding how the technologies and developments may impact your financial institution’s credit decisions and credit portfolio is of critical importance, while also you can improve your finance by learning online trading, as there are resources like trade fx that help you with this. With MonJa’s Digital Banking and Lending Monthly Roundup, it’s easy to stay up to date on what’s happening in the space. Get the latest updates, analysis and commentary on digital banking and lending segment!
05/26/23 Cox: New Car Sales Rise, Used Fall in May (Credit Union Times)
Credit unions rely on automobiles for approximately one-third of their loan portfolio. While the demand for used cars has been declining, credit unions have experienced increased market share for new car loans over the past year. According to Cox Automotive, the sales of new cars are expected to surpass last year’s rate due to the growing inventory and sustained demand. In the week ending May 20, the Labor Department reported a seasonally adjusted total of 229,000 new jobless claims, representing a 4,000 increase compared to April’s figures. However, this increase comes after April’s numbers were revised downwards by 17,000. The U.S. Bureau of Economic Analysis has revised its initial estimate for first-quarter growth to 1.3%, an improvement from the estimated 1.1% gain a month ago. According to Charlie Chesbrough, a Senior Economist at Cox Automotive, the increase in new car sales in May might appear unexpected due to higher interest rates and vehicle prices compared to the previous year. However, the reason behind this growth is that prospective car buyers now have a significantly improved likelihood of finding a vehicle that meets their requirements.
05/25/23 US business borrowing for equipment falls 8% in April- ELFA survey (Reuters)
According to the Equipment Leasing and Finance Association (ELFA), borrowing by U.S. companies for equipment investments in April was nearly 8% lower than the previous year. It remains uncertain whether the reduced borrowing is a result of higher interest rates impacting liquidity or if it represents a temporary decline in an otherwise robust market. Credit approvals totaled 77.3%, up from 75.3% in March, which tracks the economic activity for the finance sector’s nearly $1 trillion equipment. Additionally, the survey reveals that some business leaders hold a somewhat pessimistic view regarding the near-term economic outlook and, specifically, the equipment finance industry.
05/22/23 Analysis: Private equity steps up lending as U.S. banks pull back (Reuters)
The challenges faced by regional banks in the United States have prompted some lenders to retreat, creating an opening for non-bank entities such as asset managers, private equity (PE) funds, and insurers to increase their lending activities. These non-bank creditors engage in direct lending, which differs from the more common practice of banks underwriting debt that can be sold in secondary markets. Major PE and investment management firms like Ares Management Corp, Brookfield Asset Management, and KKR have entered the lending space in sectors that have traditionally been dominated by banks. The tightening of lending standards has created opportunities for private credit to expand its market share. Investors also have multiple avenues to fill the void left by banks. They can directly acquire loan portfolios from banks or provide financing to companies that were previously supported by banks. According to Fitch Ratings, 12% of the $6.3 trillion U.S. commercial credit market comprises investors offering private lending. Comparatively, regional banks account for $4.5 trillion in loans or 40% of all loans made in the United States.
05/22/23 Fintechs expand AI auto-lending tool for credit unions (American Banker)
Credit unions experienced growth in the auto lending market compared to banks in 2022. However, they are now facing challenges as interest rates increase alongside rising average vehicle prices, leading to liquidity concerns and indicating a potential slowdown. To address these issues, Zest AI and Origence, a credit union service organization specializing in connecting dealerships with credit union financing, are collaborating on a white-label product called Zest Auto, which can be used by any credit union. The importance of explainability in AI models is emphasized for regulatory compliance, as regulators seek to understand the reasoning behind model operations and approval decisions. With rising interest rates impacting underwriting activity from banks and online lenders, credit union executives should remain aware of potential refinancing opportunities and monitor consumer behavior in the coming months.
05/18/23 NAFCU: Housing Market Poised for Rebound (Credit Union Times)
According to the National Association of Realtors (NAR), existing home sales experienced a decline of 3.4% from March to April, attributed to decreasing prices and improved inventory levels. Furthermore, the Mortgage Bankers Association (MBA) reported that lenders reduced their losses in the first quarter, despite a decrease in volume compared to the fourth quarter. If the widely accepted belief that “the housing market is the economy” holds true, then concerns about a recession are mostly in the past. The interplay between job growth, limited housing inventory, and fluctuating mortgage rates in recent months has created a dynamic housing demand landscape of push and pull. According to a report by Callahan & Associates, credit unions witnessed a decline in real estate loan originations, including commercial loans, in the first quarter. The total originations amounted to $48.2 billion, marking a 43% decrease compared to the previous year and a 12% decrease compared to the fourth quarter. In contrast, the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report showcased a more positive performance. Within the report’s “same store” sample, mortgage production experienced an 8.7% decline in value and a 9.4% decline in quantity from the fourth quarter to the first quarter.
05/18/23 Equipment Finance Industry Confidence Decreases Again in May (The Equipment Leasing & Finance Foundation)
The Equipment Leasing & Finance Foundation recently released the May 2023 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI), which provides insights into the prevailing business conditions and future expectations reported by key executives in the $1 trillion equipment finance sector. The overall confidence level in the equipment finance market is 40.6, indicating a decline from the April index of 47.0. When asked about their business conditions for the next four months, none of the surveyed executives expressed optimism regarding improvements. Additionally, 53.6% of respondents anticipate that demand will “remain the same” during the four-month period, showing a decrease from 70.4% in the previous month. None of the leaders evaluated the current U.S. economy as “excellent,” with this assessment remaining unchanged from the previous month. In May, 35.7% of respondents indicated their belief that their company would increase spending on business development activities in the next six months, a slight decrease from 37% in the previous month. The majority evaluated the current economy as “fair” and economic conditions to worsen. Business development spending was projected to either stay the same or decrease.
05/17/23 Pushback Increases on Proposed Changes to SBA 7(a) Lending Rules (Credit Union Times)
According to the Small Business Administration (SBA), the proposed changes aim to allow unlimited non-federally regulated lenders and fintech companies to participate in the 7(a)-loan program. However, during a testimony, Alice Frazier, the president and CEO of the Bank of Charles Town, expressed concerns about the potential impact of these proposed rule changes on the integrity of the entire 7(a) lending program, considering it a “serious threat.” Additionally, in a recent letter to committee members, Jim Nussle, the President/CEO of the Credit Union National Association (CUNA), stated that while the organization supports the SBA’s goals of streamlining the process, they believe the proposed changes might not effectively improve access to SBA funding for minority and underserved communities. In fact, they are concerned that these changes could inadvertently harm the very borrowers the SBA intends to assist.
05/17/23 Credit Unions Find Creative Solutions to Balance Drop in Mortgages (Credit Union Times)
In February, mortgage applications reached their lowest level in 28 years, indicating that more homeowners are choosing to stay in their current homes. Rather than selling and purchasing a new property, homeowners are opting for home improvement projects to enhance their existing homes and make them closer to their ideal living spaces. One reason for this trend is that many homes are aging and require costly maintenance updates, such as roof replacements. This presents an opportunity for credit unions that have experienced a decline in mortgage loans. Home improvement loans can be offered at the point of sale through licensed and insured contractors, relieving the financial institution of upfront work. These loans are disbursed to contractors upon completion of the approved work as per the homeowner’s satisfaction. The demand for home improvement loans is increasing, providing credit unions a reliable means to deploy capital. Unsecured home improvement loans can complement credit unions’ existing offerings, as they attract borrowers with a strong credit profile without requiring additional resources.
05/09/23 Banks tighten credit terms, see loan demand drop, Fed survey shows (Reuters)
Based on a survey conducted by the Federal Reserve among bank loan officers, it was found that credit conditions for both businesses and households in the United States tightened during the first months of the year. However, the survey results indicated that this tightening was a gradual result of Federal Reserve monetary tightening rather than a sudden and drastic decline in credit following the collapse of Silicon Valley Bank in March. Credit conditions were slightly stricter for small businesses, with a net 46.7% of banks reporting tighter credit terms compared to 43.8% in the previous survey. The survey also revealed that banks were showing a reduced willingness to provide consumer installment loans and were limiting the size of loans, such as auto loans. The tightening of credit conditions was influenced by growing concerns among banks about conserving capital and maintaining sufficient liquidity due to a less favorable economic outlook. However, policymakers are cautious about credit tightening eventually leading to a recession. Economists anticipate further tightening of credit in the coming months, and this survey serves as a leading indicator of how bank credit is likely to evolve.
05/03/23 Small Business Lending Fraud Expected to ‘Worsen’ in Coming Months, Study Finds (Credit Union Times)
In April, credit union trade groups raised concerns about potential increases in fraud risks due to new rules introduced by the U.S. Small Business Administration (SBA). These rules, effective from May 11, involve an expansion of Small Business Lending Company (SBLC) licenses, potentially impacting under-regulated fintech companies. According to a recent report by LexisNexis Risk Solutions, a survey was conducted among approximately 150 professionals working in credit unions, banks, fintech/digital lenders, and payment processors to gain insights into the landscape of small business lending fraud. The findings revealed that fraud losses accounted for a significant portion, potentially up to 15%, of the total losses reported by these organizations. Additionally, it was noted that nearly 19% of the losses in small business lending could be attributed to the increased use of digital transactions in the aftermath of the COVID-19 pandemic. Among the different types of organizations surveyed, fintech companies experienced the highest levels of fraud-related expenses. The survey conducted also identified the top three recommendations for mitigating small business lending fraud, which include implementing authentication measures to verify the identity of individuals, adopting a multi-layered authentication defense strategy that incorporates real-time event data, third-party signals, and global, cross-channel intelligence, and utilizing technologies that can differentiate legitimate customers from fraudsters and malicious bots based on their access points.